Headquartered in Boston, Massachusetts, Wayfair Inc. (W) is one of the world’s largest online destinations for the home. The company offers roughly 18 million items across home furnishings, decor, home improvement, and housewares, among others. W primarily operates through two segments — United States and International. The company offers five sites, including websites, mobile-optimized websites and mobile applications — Wayfair, Joss & Main, AllModern, Birch Lane, and Perigold.

The company’s net revenue across both segments grew significantly during the third quarter (ended September 30, 2020). The growth was driven by its strategic investments in merchandising, and an increase in the number of orders placed by its existing customers. Orders delivered increased 72.8% year-over-year to 15.8 million. Repeat customers placed 71.9% of total orders during the third quarter. There were 11.3 million orders from repeat customers during the quarter, up 84.4% year-over-year.

Increased focus on home improvement amid the pandemic helped W thrive last year. It gained 1,175.5% since hitting its 52-week low of $21.70 in mid-March. However, stiff competition could limit the company’s growth in the upcoming months. This along with several other factors have made our proprietary rating system to rate the stock as “Neutral.”

Here is how our proprietary POWR Ratings system evaluates W:

Trade Grade: B

W is currently trading above its 50-day and 200-day moving averages of $257.80 and $269.63, respectively, indicating an uptrend. Moreover, W has gained 37.7% over the past six months, reflecting solid short-term bullishness.

The company’s top line climbed 66.5% year-over-year to $3.84 billion for the third quarter that ended September 30, 2020. United States’ segment revenue increased 66.5% year-over-year to $3.27 billion, and revenue from the international segment increased 66.7% year-over-year. Net income and non-GAAP EPS was reported to be $173.17 million, and $2.30, respectively. This is in comparison to the loss incurred by the company in the third quarter of 2019.

W announced a 72-hour Clearance Sale through today, where the company announced several attractive deals. The company had also announced its biggest sales event of the year, Way Day 2020 that was held from September 23, 2020 until September 25, 2020. On November 13, last year, W announced that Michael E. Sneed, the Executive Vice President of Global Corporate Affairs and Chief Communication Officer for Johnson & Johnson (JNJ) had been elected to its board of directors.

Buy & Hold Grade: C

In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade takes into account, W is moderately positioned. The stock is currently trading 18.7% below its 52-week high of $369, which it hit on January 14.

Driven by W’s concentrated efforts in the international segment, its net revenue grew at a CAGR of 45% over the past three years.

Peer Grade: D

W is currently ranked #24 out of 42 stocks in the Specialty Retailers industry. Other popular stocks in the specialty retailers group are GameStop Corporation (GME), At Home Group Inc. (HOME), and Ulta Beauty, Inc. (ULTA).

GME and HOME gained 670.1% and 279.5%, respectively over the past year, while ULTA returned 9.3%. These compare to W’s 32.9% return over the same period.

Industry Rank: B

The Specialty Retailers industry is ranked #68 out of the 123 StockNews.com industries. The companies in this industry offer an assortment of goods from office supplies, video games, books, health supplements, beauty supplies, and others.

Companies that focused on their digital presence have performed well amid the pandemic, as people preferred to buy things online. Since this trend is here to stay, the industry is expected to witness continued demand.

Overall POWR Rating: C (Neutral)

W is rated “Neutral” due to its modest performance compared to its peers, despite having positives such as growth in the number of repeat customers, and growth in revenue across all segments, as determined by the four components of the POWR Ratings.

Bottom Line

Although W faces stiff competition from its peers, it has the potential to soar in the upcoming months, based on its continued business growth, impressive international market expansion, favorable earnings and revenue outlook, and strong financials.

Analyst sentiment, which gives a good sense of a stock’s future price movement, is pretty impressive for W. It has an average broker rating of 1.73, indicating favorable analyst sentiment. Moreover, W’s earnings surprise history looks impressive with the company missing the consensus estimate in just one of the trailing four quarters. The consensus revenue estimate of $16.02 billion for 2021 indicates a 12.6% increase year-over-year. Its EPS is expected to grow 92.6% for the quarter ending March 2021.

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W shares were trading at $293.88 per share on Tuesday morning, down $6.12 (-2.04%). Year-to-date, W has gained 30.14%, versus a 1.02% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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